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Financing

Johnny Rockets owner Fat Brands merges with its CEO’s investment fund

The deal will enable the restaurant chain collector to raise more capital and make more acquisitions.
Photograph: Shutterstock

Fat Brands, the owner of Fatburger and Johnny Rockets, on Friday announced it has completed its long-awaited merger with its controlling shareholder, Fog Cutter Capital, the investment firm founded by Fat’s CEO, Andy Wiederhorn.

Terms of the deal were not disclosed, but the merger has been in the works for several months and is viewed as a way to simplify the company’s corporate structure while also enabling it to raise more funds for future acquisitions. Fat Brands stock soared on the news—up 50% in early morning trading.

“Fat Brands has considered a combination with Fog Cutter as another step in our efforts to simplify our corporate structure and eliminate limitations that restrict our ability to use common stock for accretive acquisitions and capital raising,” Wiederhorn said in a statement.

Fog Cutter holds more than $100 million in net operating loss carryforwards, or NOLs as a result of a 2017 tax sharing agreement. That enables the investment firm to shelter Fat Brands’ taxable income. But that can only happen if Fog Cutter holds more than 80% of the shares of Fat Brands.

That prevented Fat Brands from issuing additional shares to make acquisitions or raise cash. By creating more shares, that would have diluted ownership and would have put Fog Cutter under that 80% mark, ending its ability to act as Fat Brands’ tax shelter.

Thus, Wiederhorn said, the merger will enable Fat Brands to buy even more restaurant companies. “We believe that the steps we have taken in 2020 will position us to capitalize on organic and acquisition-led growth in the future,” Wiederhorn said.

Fat Brands has made a series of acquisitions, generally of bargain chains. That includes Johnny Rockets, its most recent acquisition. Since 2017 the company has acquired Ponderosa and Bonanza, Hurricane Grill & Wings, Elevation Burger and Yalla Mediterranean.

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